The Anatomy of a Flight Ticket
When you book a flight, the final price you pay is much more than just the airline's charge for carrying you from point A to B. A typical ticket price in India is split into several components. The base fare is what the airline actually sets based on demand
and competition. Added to this is a fuel surcharge, which airlines adjust to cope with volatile fuel prices. After that come a host of mandatory costs: Goods and Services Tax (GST), Passenger Service Fee (PSF) for security, and User Development Fee (UDF) for airport infrastructure. Airlines only have control over the base fare and fuel surcharge; the rest is collected on behalf of government and airport authorities. On many routes, these fixed charges can make up a significant portion of the total cost.
The Heavy Burden of Aviation Fuel
The single biggest expense for any airline is Aviation Turbine Fuel (ATF), which can account for nearly 45% of its total operating costs in India. This makes airlines incredibly sensitive to fuel price fluctuations. However, the core issue in India isn't just the global price of oil, but the heavy taxation layered on top of it. Unlike petrol and diesel, ATF has not been brought under the GST regime. This has created a complex and expensive tax structure that ultimately gets passed on to the passenger.
A Complicated Web of Fuel Taxes
The taxation on ATF is a two-tiered system. First, the central government levies an excise duty, which stood at 11% as of early 2026. On top of that, each state government imposes its own Value Added Tax (VAT), which can vary dramatically—from low single digits to as high as 29%. Because ATF is outside GST, airlines cannot claim input tax credit on the taxes they pay. This means the tax becomes a direct cost, inflating the fuel bill and setting a high floor for ticket prices before an airline even considers its own operational expenses or profit margin. An airline flying out of a state with high VAT on ATF faces a significant cost disadvantage, impacting fares on that route.
Don't Forget the Airport Fees
Beyond fuel, another major set of fixed costs comes from airport charges. These fees are levied to pay for airport maintenance, security, and development, especially at modernised airports built under public-private partnerships. The User Development Fee (UDF) and Passenger Service Fee (PSF) are the most visible to passengers. These fees are not set by the airlines but by airport operators and regulators. As airports expand and modernise, these charges can rise, adding another layer of cost to every ticket sold, regardless of which airline you fly or how much you paid for the base fare.
Where Competition Can't Compete
This brings us back to the role of competition. In a healthy market, competition among airlines drives down the 'base fare' component of a ticket. This is why you see fare sales and promotional offers. However, airlines cannot compete on the portion of the ticket price dedicated to taxes and mandatory fees. When 35-45% of a ticket's cost is made up of these fixed, non-negotiable charges, there is a limit to how low fares can go. Even if an airline aggressively cuts its own margin to offer a cheap base fare, the final price remains inflated by a structure it has no power to change. The result is that even in the most competitive markets, passengers are paying a high premium dictated by tax policy and infrastructure costs.
